The LifeCycle of A Trader
Everyone with a desire to expand their knowledge, quit their job, travel the world, or just put some extra cash in the bank ventures into the Stock Market at some point. Within a few days you have done your research online and come across some great stories of people who turned a few thousand dollars or less into millions and live a great life. Which leads me into the first step on this journey to success.
1. Penny Stocks
As much as it pains me to even bring up these illiquid ‘pump-and-dump’ stocks it is where most people start out. Most likely from an Instagram picture of “Trade from anywhere with a laptop” or an article of how a stock jumped 200% and the pattern was so predictable. This triggers an automatic thought of “Oh well if this person can do it.” So you are all setup with an alert service and a fresh brokerage account funded with some cash you plan on easily running up to 7 figures. Now you are an official trader either with a laptop during lunch, in between meetings, or placing orders from you phone while working. From this stage forward one of two things happen, you either start losing money and give up or you search further into the market and learn this whole new world of liquid stocks with options. This has probably occurred after you learned about the PDT rule by default from your broker when your account went into restriction, so this forces you into a couple different paths. Path 1 is that you request a cash account and day trade there and just deal with the settlement timing. Path 2 is moving into more liquid names or options that you can swing trade a little ‘safer’ than holding worthless companies overnight. This is taking into consideration that you even know about these 2 paths and can make that decision.
2. Swing Trading Stocks
Now that we are finally out of that first swamp we can start working our way up the first real hill of stock trading. At this stage of the game if you stuck with it you are starting to put in some real screen time and learning different strategies that you can apply. The goal is to grow your account up to that magical $25,000 number so that you can day trade again and make more money than one could spend. (Unless you stumble across the Series 56 and becoming a prop trader then the $25,000 isn’t required.) Well now if I have more screens I can see more and this will help me grow even faster right? First you will start off with 2 and then eventually work your way up to a 4 monitor setup as you grow your account. I’m not mentioning the people that are failing to profit and give up, but believe me there will be a large chunk along the way.
3. Options Trading
The time has now come to start playing options and really leverage this knowledge and success I have had in individual equities. With a new strategy and product to trade the only logical thing to do is add 2 or more screens so that I have room for everything I am now doing. At first there will be some struggling with choosing the right strike price and expiration series but that is easily overcome with a little adjusting. This now allows the use of much less capital to control the same amount of stock as before when you were trading common shares, and if you negotiate it right your commissions could become a fraction of what they once were. Now lets fast forward to when the $25,000 limitation is just a thing of the past after some serious struggle to finally break through it. At this point if you aren’t already watching the futures market during off hours then it is in the very near future.
So at this stage of the game you are either a profitable trader, or started with more than the $25,000 number and fell beneath that and heard somewhere that there is no PDT in the futures market. Now you are giving this futures thing a try with a small account at a futures only brokerage for the commission and support benefits. After a few weeks to a few months and perfecting a strategy that fits your goals, the want/need to trade other products starts to dwindle. Slowly but surely you are not having to watch as many symbols so you start to get rid of a screen here and a screen there until you are back down to 1-2 monitors and a very simple trading style.
In conclusion this has been the path I have seen the majority of traders go through during their career. There will be some sure that get stuck on only wanting to trade penny stocks, or only options, and if it works for them then no reason to tell them it is wrong. What I wish is that someone would have wrote this out and explained it a little more in depth to me before I went through all the growing pains. With this information I would have went straight into futures which is where I ended up anyway. I left out a ton of the ‘blood & guts’ on purpose but just a general outline to let you know as long as you don’t give up this trading game is possible and can result in a great life.
Eric Marcus II